finance 101 exam

Sonny and Cher have a net worth of $35,000 and total assets of $200,000. If their revolving credit and unpaid bills total $2,200, what are their long-term liabilities?

162,800

your investment advisor wants you to purchase an annuity that will pay you 25,000 per year for 10 years. It you require 7% return what is the most you should pay for investment?

175,000

As a percent of take-home pay, monthly consumer credit payments should not exceed

20%

annual percentage yield is the same as the

effective rate

a significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property (t/f)

true

certified check is a personal check that the bank guarantees the funds are variable (t/f)

true

collateral is an item of value used to secure the principal portion of a loan (t/f)

true

compound interest means that a savings account earns interest on the interest previously earned (t/f)

true

convenience and improved record keeping are two advantages sited for on-line bill payment (t/f)

true

credit union members are expected to have some common bong (t/f)

true

debit and atm card transactions are linked to your checking account (t/f)

true

debit cards look like credit cards, but work like checks (t/f)

true

if your bank states that it compounds monthly, the effective interest rate will be greater than the nominal interest rate (t/f)

true

joint checking accounts typically imply the right of survivorship if one party dies (t/f)

true

mortgage interest and paid home property taxes are both itemized deduction items (t/f)

true

one who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents (t/f)

true

revolving credit lines are often accessed by writing checks (t/f)

true

state income taxes and real estate taxes are both itemized deduction taxes (t/f)

true

the cash value of a whole life insurance policy can be used as a source of loan collateral (t/f)

true

the difference between the market value of your home and the balance of the mortgage is your equity in the property (t/f)

true

the federal personal income tax is a progressive tax (t/f)

true

the student loans with the best loan terms are the stafford and perkin loans (t/f)

true

you can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions (t/f)

true

you should itemize deductions when total itemized deductions exceed the standard deduction (t/f)

true

your savings will grow faster with monthly interest compounding than with quarterly interest compounding (t/f)

true

a 5% down payment will result in larger monthly mortgage payments than a 10% down payment on the same house for the same maturity mortgage (t/f)

true

a balance sheet shows your financial condition as of the time the statement is prepared (t/f)

true

a charge made on your credit card becomes a liability as soon as the charged is incurred (t/f)

true

a closed-end automobile lease is the most popular type of lease (t/f)

true

a lender will generally require mortgage insurance is the down payment is less than 20% (t/f)

true

which of the following loan sources is most expensive

consumer and finance companis

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities?

$115,000

the monthly payment on an 8%, 36-month, add-on loan for $10,000 would be

$344

John and Charlotte are considering contributing $1,000 to their church. This contribution will bring their total itemized deductions to $2,000. Assuming they are in the 15% marginal tax bracket, how much will they save in taxes by contributing this $1,000 to their church?

0

Molly and Justin are considering contributing $5,000 to their favorite, tax deductible charity. This contribution will bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to charity?

1,400

Michael and Sandy purchased a home for 100,000 five years ago. If it appreciated 6% annually what is it worth today

133,000

Jamil invested 9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value

14.4

Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle?

20,000

a money factor of .00360 on a lease is equivalent to an annual percentage rate of

8.64

Balance Sheet Equation

Total Assets - Total Liabilities = Net Worth

For tax purposes, head-of-household refers to

a single individual with dependents

the income statement is specific to

a specific period of time

you want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the

add-on method

When doing a DDA reconciliation, interest earned on your account should be

added to your checkbook ledger

If you write a check for an amount greater than your account balance, the result will be

an overdraft

all of the following are useful ways to build a strong credit rating except

apply for a long-term loan and occassionally be late with payment

a characteristic of consumer loans is that they

are arrived at through a formal process, include a repayment schedule, are used to purchase big-ticket durable goods and other items, include a negotiated contract

rebate cards work best for those who use rebates and

charge large amounts on the card, pay total card balance monthly

Whenever you write a check or make a deposit, an entry should be made on your

checkbook ledger

besides the finance charge, you should also consider ___ when you show for a consumer loan

collateral, loan maturity, repayment penalties, total cost of the loan

a budget is a

detailed financial forecast

The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance (t/f)

false

asset management accounts are offered by most banks and are FDIC insured (t/f)

false

generally speaking, the interest rates on credit cards are lower than any form of credit (t/f)

false

generally speaking, variable rate loans are desirable if interest rates are expected to increase over the course of the loan (t/f)

false

installment loans are typically repaid in one payment (t/f)

false

marginal tax and average tax rate refer to the same thing (t/f)

false

money I loaned to a friend is a liability on my balance sheet (t/f)

false

the balance sheet equation is assets plus liabilities equals net worth (t/f)

false

the equity in your home is difference between the loan balance and the purchase price (t/f)

false

the largest single investment you will undertake in your lifetime will probably be the purchase on an automobile (t/f)

false

the market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500 (t/f)

false

the personal exemption for a student can be taken by both the parent and the child (t/f)

false

you can stop payment when you purchase an item with your debit card (t/f)

false

budgets are

forward looking

the stated interest rate on your account is 7.12% interest paid semi annually. your effective rate of interest will be

greater than 7.12%

Russ buys his wife a valuable painting for $20,000. He purchases it using $15,000 from his savings and a $5,000 loan. How does this transaction affect Russ' balance sheet?

his assets increase, his liabilites increase, his net worth stays the same

interest rates on _ are typically lower than any other form of consumer credit

home equity loans

the federal government gets the majority of its revenue from the ____ tax

income

a legal claim that allows creditors to liquidate loan collateral is a

lien

You would typically not include ____ in your gross income.

life insurance death benefit payments

you would typically not include ___ in your gross income

life insurance death benefit payments

the capital cost reduction on a vehicle lease is

like the down payment on a loan

Interest will almost always begin to accrue immediately when you use a bank credit card to

make purchases, send payments, compute finance charges, get cash advances

the quality of your credit rating is maintained by

meeting credit obligations as contracts require

William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card?

no annual fee and long grace period

a loan from the cash value of your life insurance policy would be characterized by

no specific repayment date

before taking out student loans, all of the following should be considered

personal resources, grants, federal student aid, scholarships

the federal income tax is

progressive

in which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease

residual value is less than expected, mileage limits were exceeded

which source of consumer loans specializes in home mortgage lending

savings and loan associations

annual percentage rate is equivalent to

simple interest method

tax credits reduce your

tax liability

_ income is subject to federal taxes

taxable

Jackson is a 25 year old college student whose parents contribute to his support. His parents may claim him as a tax dependent in 2011 as long as

they contribute more than half of his support for the year

commercial banks generally charge lower interest rates than other lending institutions because

they usually take only the best credit risks

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay?

they will pay the same amount of social security taxes

you are solvent if your

total assets exceed total liabilities

Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement. (t/f)

true

One's average tax rate is typically lower than one's marginal tax rate. (t/f)

true